Make your money work for you!

Month: December 2015

Time flies when you’re having fun, huh? My Bondora portfolio is now three years old, so I thought I’d take a quick look back and see what’s been happening and share a bit about my future plans when it comes to my private portfolio in Bondora.

Some quick stats to get started:

Total money invested: 5000€

Total interest earned: 2031€ (as of 30.12.15)

Current portfolio: 80% Estonian loans

Loans by rating: see below

So, the good, the bad and the ugly. Overall I am happy with how my Bondora portfolio has performed. I also took some time to calculate my returns, and this is the current standing for my own calculations for returns:

Option 1 (Super pessimistic)

Option 2 (Less pessimistic)

The pessimistic scenario looks rather pessimistic indeed, but don’t get stuck on those numbers. This is because it assumes no recovery for loans, but I can actually see recovery happening, so no need to panic. Overall in the long run the returns will be somewhere in the 12% range, it has balanced out more and more as time has gone on.

Future plans

I have completely stopped adding money into my private portfolio, and once new year starts I will start actually taking out money. There are several reasons for this. 1) I am building a second Bondora portfolio for my business account (going well so far, have given out my first 100 loans), 2) The tax hit is just getting too big (before, it balanced out with my mortgage tax return, but this year I’m actually paying additional tax), 3) Benefits of investing as a business – both in terms of accepting defaulted loans and postponing tax obligations.

So, as of today, I have set my bids to AA & A Estonian loans, however many there may be, and hope to transfer out the 5000 euros that I invested in the next two years. This money will be directed into stock investments, mostly into buying into index funds regularly, since stocks are the most reasonable investment for a private person in Estonia. I predict that my private portfolio will remain in the range of 3000€, and I’ll keep it slowly spinning to track how it does.

There are new P2P lending platforms popping up like mushrooms. In many ways this is good – you have more platforms to choose from and a way to both manage risks and find an instrument most suited to your profile. On the other hand, it’s becoming difficult to keep up with all the different sites – if you’re Estonian you now have at least 10 P2P sites to choose from. So, to get a look into what the Latvian P2P site Viventor is about I got to ask some questions from their Operations Officer, Toms Niparts.

What is Viventor’s main focus (what type of loans, which markets? do you have future expansion plans?)

Our main focus at this point is to offer high quality secured investments that carry very low levels of risk. As we move further, we are planning to add various other products with different levels of risk, as well as get into large scale real estate projects. We are aiming to serve investors from all over Europe, but it will obviously take some time to reach this goal. Currently, we see the most interest from Southern and Western Europe.

What do you feel is your competitive advantage when compared to other platforms on the market?

One thing is definitely the extremely low risk levels of loans. I don’t know any other platform that offers secured loans with LTV being between 20 and 40%, plus with a Buyback Guarantee. We are also putting a major focus on seamless investing experience and design of the platform, so that using it would be obvious also for people not very familiar with web products.

I noticed that you have a buyback guarantee – could you explain further on which terms it works and why you decided to have a buyback guarantee? (since many sites do not)

If a loan is 60 or more days delinquent, the loan originators will offer to buy back the investment at the face value (=price that investor paid to purchase the stake). The investor alsohas the right to refuse, and wait for the debt to be recovered, simultaneously accruing delayed interest and late fee payments.
Since we are a new platform without a known brand name, we have to build our image, and show that we, as well as our loan originators have skin in the game 100%. Buyback Guarantee is only one of the ways of doing it. All of the loans are also 100% pre-funded, and the originators have the first charge on the mortgages should a borrower default.

When looking at the loan listings – 6%-7%, why do you feel that this interest is competitive? (What are your historical returns & how do delayed/bankrupt loans get handled?)

We believe that 6-7% is a very good return for the deal offered. Keeping in mind the already mentioned low LTV levels, another major factor is that all the mortgages are located in Spain, which obviously speaks about their liquidity.
About the historical returns – there is not a whole lot of data so far, since we started out only less than two months ago. The weighted-average return of our loan book, for example, is 6.82% p.a. Fixed. About non-performing loans: the loan originators have debt collection partner companies for this purpose.

Anything that you want to add, that you wish investors knew about?

Apart from low levels of risk, Buyback Guarantee and the noteworthy collaterals, we also offer fixed interest, which only a few platforms on the market offer. This means that you receive the same amount of interest every month, instead of diminishing interest payments.
We have a plenty of loans available that reach the maturity within 12 months or less, so this means that an investor is not locking up his money for a long period of time. The Secondary market is coming soon, as well as a number of other loan products with different levels of risk and returns. Currently, Viventor is available in English, German, Russian and French, but we will be adding a few other languages in 2016.

First impressions

A lot of investors feel that one of the key issues of P2P lending is the risk, so for them mortgage backed loans with low LTV would clearly be something interesting. However, looking at returns currently offered by other P2P platforms, it’s an issue of risk vs reward, but for people with a lower risk tolerance I can see these returns being attractive.

Of course they have a somewhat uphill battle ahead of them, since there are many P2P portals on the market offering different products even in the same niche (EG in Estonia, Mintos in Latvia). Hope they do well – the market could always use good competition.

A couple of weeks ago some Estonian bloggers got invited to Bondora to talk a bit about future plans, to get a chance to ask our questions and discuss overall better communication. I’m going to write down a slightly chaotic list based on the notes I made, please notice that this is what I wrote down and understood, any errors are wholly mine.

Company restructuring

The business has been seriously reorganized to separate people who work with borrowers and people who work with investors. This is largely due to how little overlap there is with the products, meaning in the long run better service and quality for both sides.

Rework of investor communications

Pärtel was honest in admitting that investor relations have not been working at the level they should have, and complaints have been justified. There is a whole new investor relations team, and I have already had some experience with them, and I’ve seen far more professional answers and contact than from general customer service before.

Rework of business logic and other details

2015 was a year of big change, including both reworking the models for rating clients and reworking a lot of the legal framework. The legal changes mean that now an investor essentially purchases a claim for a piece of a loan, but isn’t directly tied to the loan taker – all loans for a moment go through Bondora’s records, but legally it’s set so that even in case of Bondora’s bankruptcy investors keep their claims. The legal framework has also been set to include institutional investors.

Banking license in the future

Due to practical reasons of trying to enter new markets, a banking license is inevitable due to how much easier it makes accessing new markets. It would also allow Bondora to include more products for people, for example a set interest CD that would be backed by the loan book. Bondora itself investing partially into the loans was also mentioned. It would definitely allow for more flexibility in terms of products and new markets.

But active retail investors?

Retail investors are here, and will remain. Active ones who manage their own portfolio are however a rarity and there just isn’t enough money in their hands to support expansions into new countries (this is already known based off all other big P2P sites). This means that institutional investors will have to come on board to support expansion.

Institutional investors

Pärtel mentioned that the “ballpark” for institutionals is that they’d be able to provide something in the range of 100 million per year to help keep up loan supply. It might seem like much, but expansion plans that are going around are mentioning 8 new countries by 2017. Institutional investors are also more interested in Spanish loans due to higher returns. (Retail investors are always scared that they’re going to lose access to EST loans, but that’s too tiny of a market for any institutional investor.)

Bondora rating

Overall the rating has proven itself. There was a tiny update in December to improve the current model. We were shown a lot of charts & data and overall conclusion is that the rating has failed to predict well for Spanish B, D, C, however those combined are at 2% of the portfolio, and the new model was set to fix it. Risk/recovery are currently on plan.

Recovery

There will be open data in the near future about how the DCA (debt collection agency) have done in recovering, but Pärtel said that the data is better than expected. The reason why they use DCA at start instead of courts is that 1) often people fear DCA’s more, 2) courts take a very long time to act 3) courts are inconsistent in their rulings. Hope to see a blog post by them about this at some point.

Buyback

One of the bloggers, Jaak, raised the topic of a buyback guarantee and allowing investors to accept the loss, if they so desired from defaulted loans. Pärtel stated being very much against it due to the black box that it creates. (I agree on that). An investor can accept the loss when selling on the secondary market though, since now that the loans are legally restructured you can sell defaulted loans as well, though of course the discount has to be rather steep.

Secondary market

Pärtel also briefly introduced plans to work on secondary market pricing, to include a sort of a “fair price”, allowing people to assess sm loans better, and eventually use the autobidder to buy and sell on the sm. This is probably very far in the future – you can still manually price loans, but if they fall outside of the limits of the fair price that Bondora estimates then people need to manually purchase them.

Primary and secondary market

Are not going anywhere, but will also not be receiving any significant upgrades or additions. Currently no plans to phase them out.

Sharing data

One of the topics we discussed was official communication channels. The Bondora forum exists but is rather useless, it’s used by ~100 people, the loudest of whom often no longer investors, meaning that new users get no useful info there, since Bondora doesn’t actively track it. The current official communication channel is the blog that’s been getting a lot more action recently. We also passed along the suggestion for regular Q&A sessions.

API

First third party applications are already available and in use. Looking at other P2P portals, the pricing of the API tends to come to 0,2-0,5%. They are following the market to see what’s happening. We briefly discussed the issued of API bids being last in line to make a bid and that this might be a bigger problem in the future. The issue is understood, and can be tracked better now that the old PMs are closed, it will create a clearer picture for how well loans fill. Also, in the future it would be possible (once more institutional investors are on board) that a set % of a loan is always set aside for retail investors.

Future fixes

Essentially what we’ve been waiting for forever – more data & charts on the web (I’ve sent them my wishes like 3x I think). There should be a fix for the cash flow page finally as well in addition to overall quality of life fixes. (The first – bid amount per loan for autobidder users is already live.) Looking forward to seeing all the fixes (hopefully in the near future).

Summary

Overall, while I complain a fair bit about some of the decisions and communication blackouts that Bondora has had (and that complaining has been justified) then I have continuously invested into Bondora due to the returns offered.

I am happy that they are finally starting to work on many issues that have been problematic for a long time (years). Of course, as usual – with many things I’ll have to see them to believe them, but even the fact that we were invited to meet shows a level of openness we haven’t seen before.

Overall, hoping for many positive changes in 2016 both in terms of web use comfort, better access to data, better communication and overall growth of the company.

For years I’ve been investing as a private person in Bondora, so today when I finally got to registering my business account, then I realised that I didn’t actually know how to do that since there isn’t an easy button somewhere and quickly glancing through the informational material didn’t give me the result (the guide is actually accessible here).

I’m assuming that at least one person has had the same problem as me, so here is a short overview of how it goes: (I just e-mailed investor@bondora.com and they were nice enough to hold my hand through the whole process).

Step 1: Must have a verified personal account

I actually registered with Bondora such a long time ago, that I had never gone through the whole verification process as a private person. It’s just two easy steps – they want to see a photo of your ID (legible, has all relevant details) + a copy of a bill that’s listed to your address and includes your name (this might be a problem for people who rent, or who don’t have a lot of bills to pay, to substitute this you can also order a PIN to be mailed to you).

After you’ve presented the relevant documents you have to verify your bank account – I didn’t need to do that anymore, but a 1€ deposit will do it. Verifying the documents took like 15 minutes – maybe because I e-mailed them beforehand, so I’m not sure how representative this is of the general user experience.

Step 2: Provide information about your company

This step just means e-mailing relevant information to Bondora, there is no easy “send into here” button, you just e-mail them all the details about your company (owners, registration number, address, data from the business registry (RIK in Estonia) and info about the beneficiaries).

After this you just have to wait until they have looked over the documents and add a business account to your ordinary account. You can access the account afterwards in the top right corner (where your name is) and easily switch between different accounts. You just have to log in and out to make it work.

Step 3: Invest!

Once your account is registered, you can add money to your account (remember business account for the business profile!) and start investing when the money is there. Overall it was a reasonably easy process, customer service was pretty helpful and I’ve already made my first bids from my business account.

In many ways November was both a boring and interesting month at once. I’ve finished adding money into my private portfolio in Bondora, so now it’s just doing it’s own thing, however since API is finally live, then all December investments will be made through the API; so let’s see how it goes Numbers wise, not a surprising month.

Another record month for interest earned, but barely. The total remained at 108,55€, a tiny bump from last month. December is looking like it will just hit 110€, bringing my total interest earned from Bondora to 2K.

From now on, obviously the growth rate of this portfolio will slow down due to not adding in additional money, but I’m seeing nice returns, meaning that the growth should be steady enough to keep things interesting.

Recovery keeps slowly climbing (nice to see!) and for the first time, total recovery climbed over 20€/month.

Overall, not much interesting happening, waiting to start testing the API to see how well I can tune my portfolio. I’ll probably share some initial results middle of December.